The Chancellor has drawn up plans to allow parents to leave homes worth up £1 million to their children without paying inheritance tax, according to leaked Treasury papers.

The Guardian stated it had seen documents that also showed the inheritance tax bill on properties worth up to £2 million would be cut by £140,000 under the scheme.

It is understood the measure will not feature in Wednesday's Budget. Credit: Dominic Lipinski/PA Wire

The papers, marked "sensitive", note the main beneficiaries of the plan - which would cost the Exchequer almost £1 billion a year - would "most likely benefit high income and wealthier households".

It is understood the measure will not feature in George Osborne's final Budget of the current Parliament tomorrow, but could be taken up by the Conservatives if they regain power after the General Election.

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Labour leader Ed Miliband has promised an independent review into the way HMRC investigates tax evasion.

Speaking to delegates at the Welsh Labour Party Conference, he said:

Ed Balls and I are today announcing an independent, root and branch review of the culture and practice of HMRC when it comes to tax evasion and aggressive tax avoidance.
While this government has had five years of inaction, we will begin from the first days we are in government and it will report within three months.
It will shine a light on parts of our tax system that have been shrouded in secrecy under this government.

Labour leader Ed Miliband has accused the Government of "shrugging its shoulders on tax avoidance".

He said there was "one rule for the rich and powerful and another rule for everyone else" and criticised the "hugely complex ... tax schemes often based offshore" that he says has cost the nation's finances £34 billion.

Business leaders have called on the Government to merge or scrap taxes raising less than £5 billion for the Treasury.

The Institute of Directors has called for some taxes to be merged or scrapped. Credit: Chris Radburn/PA

The Institute of Directors (IoD) said taxes such as stamp duty on shares, air passenger duty, and capital gains and inheritance tax could be simplified or reduced.

Stephen Herring, head of taxation at the IoD, said: "The basic principles here are that taxes should be focused purely upon the fiscal revenues collected and their wider economic impact. They should not be confiscatory, punishing or unduly complex."

He added: "We continue to support the priority given to reducing the UK's annual fiscal deficit and recognise that this is no easy task. We also support reforms that have improved the UK's competitive ranking as a business friendly country.

"However, we have been disappointed with the pace of tax reform under the Coalition, and a more radical agenda for tax reforms is now needed."

A spending watchdog has said that billions of pounds in tax could have been dodged because the government is failing to track abuse of reliefs.

NAO: Billions lost through failing to track tax dodgers. Credit: PA

The National Audit Office (NAO) found HM Revenue & Customs (HMRC) had done little to investigate why Entrepreneurs' Relief introduced in 2008 was costing the public purse £2 billion a year more than expected.

Claims for share loss relief soared by more than 300% to £1.2 billion in 2006/07 after a number of aggressive avoidance schemes appeared - but the taxman did not identify the scale of the increase until 2013.

Tax evaders are being pursued at "unacceptably slow" levels by HM Revenue and Customs, putting millions of pounds due for Treasury coffers at risk, according to a critical report by MPs.

The agency has also overstated the success of its attempts to crackdown on the practise because its targets were set too low, the Public Accounts Committee found.

MPs warned that up £10 million of the total £400 million tax at stake may not be recoverable because HMRC failed to start inquiries into 30 cases within the legal deadline.

Public accounts committee chair Margaret Hodge said: "HMRC must do more, faster. It should report on the progress it has achieved by using new powers granted by Parliament to tackle tax avoidance and show that it is using its existing powers with sufficient urgency.

"HMRC does not do enough to tackle companies which exploit international tax structures to minimise UK tax liabilities."

David Cameron said he feels a "moral duty" to cut taxes and claimed the average worker will save £3,800 by 2020 under a future Conservative government.

Writing in The Times, the Prime Minister issued a reminder of his promise of tax cuts worth £7.2 billion to 30 million voters.

He has pledged to raise the threshold at which workers pay the higher 40p rate of income tax to £50,000, while increasing the personal allowance below which no tax is payable to £12,500.

It is morally right that the rich pay their fair share in tax; and right that those who are able to contribute to our public services and safety nets do so.

– David Cameron

Taking aim at Labour spending he said "we must be mindful of who picks up the bill" but the Opposition accused him of failing to explain how reductions would be paid for and ignoring the impact of benefit cuts on low-paid families.